Mooee, J.
In Supreme Court defendant demurred
ore terms
on the ground that the amended complaint does not state facts sufficient to constitute a cause of action.
Hall v. Coach Co.,
224 N.C. 781, 32 S.E. 2d 325. Construing the pleading liberally in favor of pleader, as we are required to do
(Glover v. Brotherhood,
250 N.C. 35, 108 S.E. 2d 78), we find that it alleges facts sufficient for causes of action, (1) for breach of warranty of title and against encumbrances, and (2) for wrongful conversion. The demurrer is overruled.
There remains for decision the question: Did the court below err in striking the challenged allegations from the amended complaint?
Plaintiff has not been put to an election as to which of the causes of action he will prosecute. Hence a brief discussion of the pleading and applicable legal principles is appropriate as a basis for determining whether or not the allegations should have been stricken.
As to breach of warranty, the amended complaint alleges in substance: On 24 October 1960 defendant sold and delivered to plaintiff a second-hand diesel tractor. Plaintiff made a down payment consisting of $1500 cash (according to conditional sale contract) and a truck valued at $1000, and the parties entered into a conditional sale contract providing for the payment of the balance of the purchase price in installments, the first installment to be due 10 December 1960. About 7 November 1960 plaintiff discovered that there was a fuel tax lien against the tractor in the State of New York and that he could not obtain a permit to operate the truck in that State until the lien was removed. He promptly advised defendant of the lien and defendant promised to have it discharged immediately. Plaintiff waited until 5 December 1960 and then stated to defendant that he could not operate the tractor profitably unless he could use it in New York and could not make the payments unless he could make profitable use of the vehicle. Defendant again promised to remove the lien. Defend
ant failed to discharge the lien and instead repossessed and sold the tractor. Plaintiff has suffered loss of profits, his cash payment and the trade-in truck.
“It is elementary that in the sales of personal property there is an implied warranty of a good title upon the part of the vendor, and this warranty extends to and protects against liens, charges and encumbrances by which the title is rendered imperfect and the value depreciated thereby.”
Martin v. McDonald,
168 N.C. 232, 233, 84 S.E. 258;
Hodges v. Wilkinson,
111 N.C. 56, 15 S.E. 941. Accord: Uniform Sales Act, s. 13; Uniform Commercial Code, s. 2-312(3): 1 Williston: Sales (Rev. Ed. 1948), s. 218. This rule also applies to sales made pursuant to conditional sale contracts.
Old Pueblo Motors, Inc. v. Abarca,
288 P. 666 (Ariz. 1930);
McDonnell Motor Hauling Co. v. Morgan Constr. Co.,
235 S.W. 998 (Ark. 1921);
Bowen v. Dawley,
101 N.Y.S. 878 (1906). At common law an action for breach of warranty upon a conditional sale contract would not lie until the conditions had been fulfilled and title had passed, but the Uniform Sales Act has changed the common law in this respect.
Groenland v. Phoenix Sprinkler & Heating Co.,
216 N.W. 431 (Mich. 1926). While North Carolina has not adopted the Uniform Sales Act, its decisions are in substantial accord with the Act in this regard,
Case Co. v. Cox,
207 N.C. 759, 178 S.E. 585;
Huyett & Smith Mfg. Co. v. Gray,
124 N.C. 322, 32 S.E. 718. The conditional sale contract in the case at bar provides that “Title to the car (sic) is retained by seller until . . . time balance is fully paid . . ., when title shall pass to the customer.” Such provision has been held to be an express warranty of title and against encumbrances.
Yattaw v. Onorato,
17 A. 2d 430, 132 A.L.R. 334 (R.I. 1941);
Rundle v. Capitol Chevrolet,
129 S.W. 2d 217 (Tenn. 1939);
MacDonald v. Mack Motor Truck Co.,
142 A. 68 (Me. 1928);
Pierce v. Banton,
57 A. 889 (Me. 1904). Or, at the very least, an implied warranty of title.
Smith v. Mfg. Co.,
166 S.E. 607 (S.C. 1932);
McDonnell Motor Hauling Co. v. Morgan Constr. Co., supra; Bowen v. Dawley, supra.
The contract in the instant case also states that “No agreement, representation or warranty shall be binding . . . unless expressly contained herein.” Defendant contends that this constitutes a disclaimer and waiver of any and all implied warranties. The trend of decisions in this jurisdiction is to give effect to such disclaimer clauses in contracts.
Petroleum Co. v. Allen,
219 N.C. 461, 14 S.E. 2d 402;
Woodridge v. Brown,
149 N.C. 299, 62 S.E. 1076. See also 39 N.C. Law Rev. 299 (1961). However, none of the North Carolina cases deal with warranties of title. And on this record it is unnecessary to deal with the effect of the disclaimer clause or to decide whether the retention of title provision constitutes an express warranty. The
contract further declares: “If any part hereof is invalid under'the applicable laws or regulations of the State . . . such part shall be deemed amended to conform thereto.” Under the laws of North Carolina the seller of a motor vehicle is required to endorse, and deliver to or for the buyer, an assignment and warranty of title and a statement of all liens and encumbrances, even where a conditional sale is involved G.S. 20-72 (b); G.S. 20-75. Strict compliance with these requirements is necessary in every sale of motor vehicles. Every such seller is therefore required to expressly warrant title and expressly list all liens and encumbrances. The effect as to unlisted liens is a warranty that they do not exist. By the terms of the contract on this record these warranties are included in and are a part of the contract.
The complaint alleges facts sufficient to constitute a cause of action for breach of warranty. Upon discovery of the New York fuel tax lien one of two courses was open to plaintiff. First, he could have rescinded the contract, returned or offered to return the tractor to the seller, demanded refund of his cash payment and return of the truck or its value, and upon refusal of defendant to accede, he could have maintained an action for the down payment and the truck.
Hajoca Corp. v. Brooks,
249 N.C. 10, 105 S.E. 2d 123;
Close v. Crossland,
50 N.W. 694 (Minn. 1891). Plaintiff elected not to rescind. He did not return or offer to return the tractor; he did not demand the return of his down payment and truck; he kept the tractor and relied on defendant to perfect the title. Thereby, plaintiff waived his right to rescind. He chose the other course, an action for damages for breach of warranty against encumbrances. In such action, a buyer cannot recover anything more than nominal damages until he has paid the amount of the outstanding lien or has been deprived of possession by reason of the lien in question, except where he alleges and proves some special damages which were within the contemplation of the parties at the time the contract of sale was made.
Close v. Crossland, supra; Paul Hellman, Inc. v. Reed,
366 P. 2d 391 (Okla. 1961). See also 77 C.J.S., Sales, s. 385, p. 1341. North Carolina has applied this rule in real estate transactions.
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Mooee, J.
In Supreme Court defendant demurred
ore terms
on the ground that the amended complaint does not state facts sufficient to constitute a cause of action.
Hall v. Coach Co.,
224 N.C. 781, 32 S.E. 2d 325. Construing the pleading liberally in favor of pleader, as we are required to do
(Glover v. Brotherhood,
250 N.C. 35, 108 S.E. 2d 78), we find that it alleges facts sufficient for causes of action, (1) for breach of warranty of title and against encumbrances, and (2) for wrongful conversion. The demurrer is overruled.
There remains for decision the question: Did the court below err in striking the challenged allegations from the amended complaint?
Plaintiff has not been put to an election as to which of the causes of action he will prosecute. Hence a brief discussion of the pleading and applicable legal principles is appropriate as a basis for determining whether or not the allegations should have been stricken.
As to breach of warranty, the amended complaint alleges in substance: On 24 October 1960 defendant sold and delivered to plaintiff a second-hand diesel tractor. Plaintiff made a down payment consisting of $1500 cash (according to conditional sale contract) and a truck valued at $1000, and the parties entered into a conditional sale contract providing for the payment of the balance of the purchase price in installments, the first installment to be due 10 December 1960. About 7 November 1960 plaintiff discovered that there was a fuel tax lien against the tractor in the State of New York and that he could not obtain a permit to operate the truck in that State until the lien was removed. He promptly advised defendant of the lien and defendant promised to have it discharged immediately. Plaintiff waited until 5 December 1960 and then stated to defendant that he could not operate the tractor profitably unless he could use it in New York and could not make the payments unless he could make profitable use of the vehicle. Defendant again promised to remove the lien. Defend
ant failed to discharge the lien and instead repossessed and sold the tractor. Plaintiff has suffered loss of profits, his cash payment and the trade-in truck.
“It is elementary that in the sales of personal property there is an implied warranty of a good title upon the part of the vendor, and this warranty extends to and protects against liens, charges and encumbrances by which the title is rendered imperfect and the value depreciated thereby.”
Martin v. McDonald,
168 N.C. 232, 233, 84 S.E. 258;
Hodges v. Wilkinson,
111 N.C. 56, 15 S.E. 941. Accord: Uniform Sales Act, s. 13; Uniform Commercial Code, s. 2-312(3): 1 Williston: Sales (Rev. Ed. 1948), s. 218. This rule also applies to sales made pursuant to conditional sale contracts.
Old Pueblo Motors, Inc. v. Abarca,
288 P. 666 (Ariz. 1930);
McDonnell Motor Hauling Co. v. Morgan Constr. Co.,
235 S.W. 998 (Ark. 1921);
Bowen v. Dawley,
101 N.Y.S. 878 (1906). At common law an action for breach of warranty upon a conditional sale contract would not lie until the conditions had been fulfilled and title had passed, but the Uniform Sales Act has changed the common law in this respect.
Groenland v. Phoenix Sprinkler & Heating Co.,
216 N.W. 431 (Mich. 1926). While North Carolina has not adopted the Uniform Sales Act, its decisions are in substantial accord with the Act in this regard,
Case Co. v. Cox,
207 N.C. 759, 178 S.E. 585;
Huyett & Smith Mfg. Co. v. Gray,
124 N.C. 322, 32 S.E. 718. The conditional sale contract in the case at bar provides that “Title to the car (sic) is retained by seller until . . . time balance is fully paid . . ., when title shall pass to the customer.” Such provision has been held to be an express warranty of title and against encumbrances.
Yattaw v. Onorato,
17 A. 2d 430, 132 A.L.R. 334 (R.I. 1941);
Rundle v. Capitol Chevrolet,
129 S.W. 2d 217 (Tenn. 1939);
MacDonald v. Mack Motor Truck Co.,
142 A. 68 (Me. 1928);
Pierce v. Banton,
57 A. 889 (Me. 1904). Or, at the very least, an implied warranty of title.
Smith v. Mfg. Co.,
166 S.E. 607 (S.C. 1932);
McDonnell Motor Hauling Co. v. Morgan Constr. Co., supra; Bowen v. Dawley, supra.
The contract in the instant case also states that “No agreement, representation or warranty shall be binding . . . unless expressly contained herein.” Defendant contends that this constitutes a disclaimer and waiver of any and all implied warranties. The trend of decisions in this jurisdiction is to give effect to such disclaimer clauses in contracts.
Petroleum Co. v. Allen,
219 N.C. 461, 14 S.E. 2d 402;
Woodridge v. Brown,
149 N.C. 299, 62 S.E. 1076. See also 39 N.C. Law Rev. 299 (1961). However, none of the North Carolina cases deal with warranties of title. And on this record it is unnecessary to deal with the effect of the disclaimer clause or to decide whether the retention of title provision constitutes an express warranty. The
contract further declares: “If any part hereof is invalid under'the applicable laws or regulations of the State . . . such part shall be deemed amended to conform thereto.” Under the laws of North Carolina the seller of a motor vehicle is required to endorse, and deliver to or for the buyer, an assignment and warranty of title and a statement of all liens and encumbrances, even where a conditional sale is involved G.S. 20-72 (b); G.S. 20-75. Strict compliance with these requirements is necessary in every sale of motor vehicles. Every such seller is therefore required to expressly warrant title and expressly list all liens and encumbrances. The effect as to unlisted liens is a warranty that they do not exist. By the terms of the contract on this record these warranties are included in and are a part of the contract.
The complaint alleges facts sufficient to constitute a cause of action for breach of warranty. Upon discovery of the New York fuel tax lien one of two courses was open to plaintiff. First, he could have rescinded the contract, returned or offered to return the tractor to the seller, demanded refund of his cash payment and return of the truck or its value, and upon refusal of defendant to accede, he could have maintained an action for the down payment and the truck.
Hajoca Corp. v. Brooks,
249 N.C. 10, 105 S.E. 2d 123;
Close v. Crossland,
50 N.W. 694 (Minn. 1891). Plaintiff elected not to rescind. He did not return or offer to return the tractor; he did not demand the return of his down payment and truck; he kept the tractor and relied on defendant to perfect the title. Thereby, plaintiff waived his right to rescind. He chose the other course, an action for damages for breach of warranty against encumbrances. In such action, a buyer cannot recover anything more than nominal damages until he has paid the amount of the outstanding lien or has been deprived of possession by reason of the lien in question, except where he alleges and proves some special damages which were within the contemplation of the parties at the time the contract of sale was made.
Close v. Crossland, supra; Paul Hellman, Inc. v. Reed,
366 P. 2d 391 (Okla. 1961). See also 77 C.J.S., Sales, s. 385, p. 1341. North Carolina has applied this rule in real estate transactions.
Fishel v. Browning,
145 N.C. 71, 58 S.E. 759;
Lane v. Richardson,
104 N.C. 642, 10 S.E. 189. The loss of anticipated profits may not be recovered in the absence of allegation and proof that they were within the contemplation of the parties at the time of the execution of the contract of sale.
Wentworth & Irwin, Inc. v. Seals,
56 P. 2d 324 (Ore. 1936). See also
Price v. Goodman,
226 N.C. 223, 37 S.E. 2d 592.
As to the cause of action for wrongful conversion, the complaint alleges, in substance, the following: facts, in addition to those sum
marized above: On 5 December 1960 when plaintiff told defendant he would be unable to make installment payments until the lien was discharged and the vehicle could be operated in New York, defendant stated “that until they had the matter straightened out, he would not be required to make any further payments,” and thereafter defendant stated that it “would contact C.I.T. Credit Corporation and have them hold the matter in abeyance until the lien was lifted.” About three weeks later defendant, without notice to plaintiff, seized the truck and thereafter sold it. Plaintiff was without means to redeem it. The lien was not discharged before the seizure.
Where a conditional seller grants an extension of time for the payment of money due or to become due under the contrae];, the general rule is that he waives default in payment and the right to forfeit the ■contract for that default until the expiration of the extension period.
Carmichel v. Guenette,
6 S.E. 2d 365 (Ga. 1939);
Valicenti v. Central Motors, Inc.,
174 A. 799 (Pa. 1934);
Sackler v. Slade,
114 S. 396 (Miss. 1927). The extension of time may be for an indefinite period, in which case time is extended for a reasonable period under the circumstances and reasonable notice of forfeiture must be given.
Calhoun v. Universal Credit Co.,
146 P. 2d 284 (Utah 1944);
Central Ins. Co. of Baltimore v. Ehr.,
139 P. 2d 701 (Wash. 1943). It has been held that no new consideration is necessary to support an extension of time, but this seems to be the minority view.
Carmichel v. Guenette, supra.
In any event, from the facts alleged, there was sufficient consideration in the case at bar to support the promise to extend the time for payment.
Where the conditional seller wrongfully deprives the buyer of possession or wrongfully withholds possession from him, he is guilty of conversion, and the buyer may maintain an action for damages caused by the conversion.
Calhoun v. Universal Credit Co., supra; Schenectady Discout Corp v. Dziedzic,
31 N.Y.S. 2d 636 (1941);
Southern Arizona Bank & Trust Co. v. Stigens,
53 P. 2d 422 (Ariz. 1936);
Valicenti v. Central Motors, Inc., supra.
Where the conditional vendor takes the property sold from the possession of the vendee and assigns as the reason therefor the default of the vendee in making payments, it has been held that the taking is a wrongful conversion when there has been in fact no default, or when the period of extension of the time for making payment has not ended.
Schenectady Discount Corp. v. Dziedzic, supra; Calhoun v. Universal Credit Co., supra.
Also see
Binder v. General Motors Acceptance Corporation,
222 N.C. 512, 23 S.E. 2d 894. In the instant case, by virtue of the alleged agreement of the seller to extend the time for payment of installments, the seizure of the tractor was wrongful and amounted to a conversion of the
property. The measure of damages in an action for conversion is the fair market value of the property taken, less the secured indebtedness, if any, of the plaintiff thereon. 78 C.J.S., Sales, s. 630, p. 437;
C.I.T. Corp. v. Watkins,
208 N.C. 448, 181 S.E. 270;
Elmore v. Ritter Implement Co.,
87 S.W. 2d 1008 (Tenn. 1935);
Hardin v. Marshall,
5 S.W. 2d 325 (Ark. 1928).
In the light of the foregoing discussions, we are of the opinion, and so hold, that the court below erred in striking paragraphs 6, 7, 8 and 9 of the amended complaint, and also erred in striking the indicated portion of paragraph 4. Paragraph 10 was properly stricken. The indicated portion of paragraph 3 is merely a repetition of some of the facts set out in the conditional sale contract, which is a part of the amended complaint, and it was not error to strike this repetitious matter.
The allegations of paragraphs 4, 6, 7, 8 and 9 are not sufficiently evidentiary in nature to prejudice defendant, and will not be stricken on this ground.
The judgment below will be modified to conform with this opinion.
Plaintiff may desire to ask leave to amend his pleadings so as to draw the pertinent issues into clearer focus.
Modified and affirmed.